Why Financial Education Isn't Taught in Schools
Money is something in life that you cannot get away from. Our economy and livelihoods are based on having it, using it and saving it. If a person is not well educated on the best way to use their money, it can be a roadblock to a secure future.
The school agenda is focused around its existing curriculum, with little appetite for change. It makes very little sense not to include at least some degree of simple financial education at some, or several, stages of a person’s education. Many people have promoted the need and benefit for this, yet it still received little interest from the top educational bodies to actually integrate this into the curriculum.
It is true that schools are subjected to a rather extensive curriculum as outlined by the governing bodies. Practical life skills seem to be further down the list than the core subject of English, Mathematics and Science. To be able to enact a change to the degree necessary to include financial literacy at the curriculum level would require a larger overhaul than the system is prepared to undertake.
As a result, we rely solely on smaller charitable efforts from individuals and groups to fill this gap. This certainly does not meet the needs of all people as all people can benefit from financial education.
Where to Begin
Debt
If we look at the biggest stumbling block to a strong financial future, we must look at debt. This is where I would start when it comes to teaching youngsters about finances. Debts cover things like mortgages, credit cards and loans, all of which people should be educated about. Crucially, education around the significant risks of making poor decisions in this area.
The first time young people can access debt they often have no education from the academic system on how it works and what the long-term costs can be from just a small amount of borrowing. Add to this the major implications for ending up with a poor credit rating and young people can be priced out of important credit lines for many years. Before they even realise that it happened, how it happened and why it’s important to avoid. When they are of age to buy a property, they will be a step behind the process as they might need to build their credit rating before they can even begin the mortgage process.
Saving and Compounding Interest
Education around the benefits of saving and compound interest would also be high on my list. Understanding their benefits reinforces the need to develop good saving routines as the earlier you start, the more wonderful the positive impact can be later on. Developing the habit of saving also helps ensure that people keep a reserve savings pot. This helps to avoid financial difficulties if/when a large and expenditure comes up. If the education is delivered in a positive fashion, particularly around the benefits of compound interest, it’s far more likely to resonate with younger people.
Options
For those coming closer to the age of adulthood, I would teach a bit about the benefits of the core savings and investment options in this country. This will include pensions and ISAs, both highly likely to be something they come across. Having a better understanding of how they work and their benefits significantly improves uptake, thus increasing the potential for tax efficient savings. This will not only make their individual lives better but will also be a massive positive financial boose for the wider UK economy in the long-term.
Teaching Techniques
In my experience the best way to engage with this demographic is to try and relate these topics to practical, real world examples. It might be challenging for a young person to relate to the topic of pensions, especially since they probably are not thinking about retirement and won’t benefit that savings pot till 60 years in the future. Instead, try looking for an example in their current life which help to lay out the concepts of debt, compound interest and saving.
In a previous article, one of our advisors discussed the importance of teaching the impact of buy now pay later to children. I will expand on his example here.
His son wanted to buy a new game console.
Yet he did not have the money to pay for it upfront. A popular high street retailer was offering the item for sale with an option to pay in monthly instalments. The advisor sat down with his son and showed him how much more he’d be paying for the item due to interest if he opted to make the purchase this way.
*These numbers are approximate amounts.
The retail price for the item was £450*.
The instalment payments were £15.50* over a 36-month period.
He would be paying £558* on an item listed for £450*.
Thus, paying £108* more than the sticker price.
Yes, he would have the console today, but he would be paying for it for the next 3 years. And be paying an extra £108* for the privilege. The solution they came up with was to crunch more numbers.
How much did he have now to put towards it, and how much did he realistically think he could save per month to buy the item outright? Though this decision would mean he would have to wait 6 – 8 months for the console, he not only learnt the financial value of deferring gratification but also utilised his skills of savings. Not to mention the additional benefit of seeing how to work out the true cost of an item when you calculate for interest.
This is arguably one of the most important lessons we can learn before adulthood. There will be plenty of big-ticket items you might want to buy when you get older. A car, a holiday, a property, an expensive item of clothing. If you help your child understand the benefit of tempering that want/need with planning and saving and then begin to help them practice it, you will be setting them up for success in the future.
Considering the above examples, I'm going to offer a few top tips on teaching financial education:
Keep it Simple
Choose one particular element of finances and start there. Especially for younger children. Financial concepts can be built on over time and taking things bit by bit can help the information be absorbed and understood.
Use Age Appropriate Language
There is a difference in the way you will teach an 8 year old vs an 18 year old financial principles. The language you use for younger children should be much more simple and basic.
Find Relatable Situations
As with age appropriate language, the situations and examples used to lay the foundations of financial education will differ for each person. A child is likely to struggle with the concept of debt, whereas they are more likely to understand saving up to buy a pricy video game, toy, etc.
If you can find something they want to buy and choose a financial principle to relate to that item, whether saving, cost of interest, potential for debt, use it.
Get Interactive
Moments where you can teach financial education come up every day. Whether its bringing the kids in on the weekly grocery budget by letting them help plan dinners, looking at the price variation of different pairs of trainers or a more in-depth review of the cost of ‘buy now pay later’ there will be organic moments where financial concepts can be explained.
Improve Your Own Knowledge
In this day and age, the internet provides endless opportunities to increase your own knowledge bank when it comes to financial principles. Our Insights page alone has free resources meant to help anyone and everyone better understand how to manage and feel confident in their finances.
Another popular webpage is Martin Lewis’s Money Saving Expert.
Whichever website you choose, just make sure it’s a reputable source. As wonderful as the internet and social media are, misinformation and content designed for views and clicks rather than facts and substance are everywhere.
The Benefits
Individually, learning financial literacy as a child is likely to make an enormous difference in adulthood. It increases access to savings accounts, investments, lines of credit, etc. Making the right decisions early on can save hundreds, if not thousands, of pounds. Just an education around the benefits of compound interest and the returns on savings overtime can mean more money for them as an individual and less paid out to banks or other financial institutions as debt repayment or loan interest. Not only will this enrich their own life, it also makes a positive societal difference.
Another, perhaps unexpected, benefit of financial education is the psychological aspect. Understanding your financial mindset and feeling confident in your decisions helps decrease the shame, stress, worry, fear, guilt and anger people often feel towards money any finance. When you give a person the knowledge they need to make educated decisions, you inevitably help alleviate some of the unpleasantness associated with money management.
The Dangers of No Financial Education
Without this education, we will continue down the same path we have now. Countless people making financial decisions which are unhelpful to them, based solely on the fact that they lack the knowledge and understanding of the best thing to do. Decisions that result in enriching the pockets of financial industries or retailers and service providers who effectively overcharge and benefit from the lack of knowledge people have.
Providing better financial literacy help people and communities make choices that are in their best interest, and better for the overall economy. There is no justification for not making some financial literacy education a core part of our education system. The sooner we start and the earlier the ages we can reach, the better everybody will be come.
Article by Adam Nettleship
CEO Bigmore Associtaes
Chartered Financial Planner
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